WTO launches probe into US cotton subsidies

GENEVA, Sep 28 (Reuters) The World Trade Organisation (WTO) launched a probe on Thursday into whether the United States has dismantled huge subsidies to its cotton farmers that have been ruled illegal.

The move was sought by Brazil, which says Washington has not complied fully with a landmark 2004 verdict in which the Geneva-based trade referee decreed part of the multi-billion dollar U.S. cotton support programme broke global trade rules and demanded sweeping changes.

The decision, taken by WTO's Dispute Settlement Body (DSB), was automatic because it was Brazil's second request.

The investigation will take at least 90 days. If it wins, Brazil could be entitled to levy billions of dollars of retaliatory sanctions against U.S. goods.

''The implementation measures that it (the United States) has adopted fall far short of compliance,'' said Brazil's ambassador to the WTO Clodoaldo Hugueney.

But the United States insisted that it had made the needed reforms and that its policies were in line with WTO rules.

''The U.S. is fully in compliance with its WTO obligations ... indeed the United States has gone to extraordinary lengths to implement the DSB recommendations and rulings,'' said U.S.

deputy trade ambassador David Shark The U.S. Congress has repealed the so-called 'Step 2' cotton programme, putting an end to export subsidies and import substitution subsidies provided through aid to U.S. cotton millers buying domestic rather than foreign cotton.

But Brazil says this leaves in place other programmes, ranging from so-called counter-cyclical payments to marketing loans and other assistance which it argues are also covered by the WTO ruling.

The Latin American country says that it could seek WTO authorisation for some billion in additional levies on U.S.

goods if Washington is found to be at fault again.

Brazil's decision to press ahead with the probe follows the suspension in late July of the WTO's Doha round of free trade negotiations.

The near five-year-old talks broke down over lack of progress in slashing rich nations' agricultural tariffs and subsidies. Trade diplomats and experts warned it could lead to more disputes being brought to the WTO.

''The U.S. talking point for the last couple of years is that 'it's better to negotiate than to litigate' ...(but) ... there are no negotiations going on now,'' said Gawain Kripke, senior policy analyst for Oxfam America.

According to Oxfam, U.S. subsidies to the country's 25,000 cotton farmers totalled billion in 2005 for a crop that was worth less than billion.

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